AAM: "There's always a price for everything."

KIRAN CHETRY: But we begin with two major stories this morning. The Bush administration considering an extreme step against Iran. They're talking about putting Iran's Revolutionary Guard on its list of terror organizations. That would be the first time that another government's military has been put on the terror list. It would also let the U.S. go after the Revolutionary Guard's finances.

We're also hearing about the possibility of pulling American troops out of some parts of Iraq. The "Los Angeles Times" is reporting the top commander in Iraq, General David Petraeus, is expected to announce the pullbacks in that critical report to Congress that's due out next month. Following the latest developments on both of these stories for us, CNN's Michael Ware. He's in Baghdad.

Good to see you, Michael.

MICHAEL WARE, CNN CORRESPONDENT: Hey, Kiran, good morning.

Yes, that's right. We're hearing now about potential moves by the administration to brand the Iranian Revolutionary Guard Corps as a terrorist organization under the list of foreign terrorist organizations held by the Treasury Department. Now this is nothing but a symbolic gesture. This is akin to Iran branding everyone at Ft. Bragg a terrorist.

Now it is nothing but name calling. It's certainly a sign of American frustration with Iran and anger. But in effect, it will have zero impact.

The Revolutionary Guard Corps, which is 120,000 troops, Iran's major military formation, does not bank in the U.S. or any countries that the U.S. has access to. So really it's akin to throwing a glass of water on a raging house fire.

Now, the reason this is happening is because the Iranians essentially are winning so much here in Iraq. The government here in Iraq is pretty much under the influence of the Revolutionary Guard's Corps and most of the bombs that are killing U.S. troops now are being made in Iran and sent across the border. That's why the U.S. is trying to take this action.

Meanwhile, we're seeing stability in some of the Sunni areas of Iraq. This is because America has cut a deal with the Baathist insurgents and the tribal insurgents that have been killing Americans. As long as they kill al Qaeda, America now allows them to operate. The mood now, according to White House sources, is to enhance that by pulling back U.S. troops.

Now, you don't want to do that too early, say some of the top American commanders here. But when you do, you must realize it's a trade-off. Yes, you can pull your boys out, but essentially you've got to cut a deal with another militia. We've seen that in the north in Mosul where essentially the peshmerga or the Kurds takes over, and in the south, in Iran [I think he meant Basra] the Brits are able to withdraw because Iranian militias take over. There's always a price for everything.

Kiran.

CHETRY: Michael Ware reporting from Baghdad for us this morning on those two developments. Thank you.